Starbucks wanted to be the ‘third place.’ Now it’s speeding you out the door

By Nathaniel Meyersohn, CNN

New York (CNN) — Years ago, some people would spend hours at Starbucks. Today, it’s a takeout counter. At many Starbucks locations, you’re lucky to find anyone sitting down.

Under Howard Schultz, Starbucks’ longtime leader, cafes were positioned as a “third place” between work and home, where people could linger for hours on plush purple armchairs, socialize and connect.

“If you look at the landscape of retail and restaurants in America, there is such a fracturing of places where people meet,” Schultz said in a 1995 profile of Starbucks for an industry publication. “There’s nowhere for people to go. So we created a place where people can feel comfortable.”

The idea of Starbucks as a third place became part of its corporate mythology. Starbucks aimed to create a welcoming environment for coffee drinkers and employees with comfortable seating, jazz music and the aroma of freshly-brewed coffee. Employees who brewed and served Starbucks coffee, whom Starbucks called baristas, handwrote customers’ names on their drink orders.

By the time Michelle Eisen joined Starbucks in 2010 as an employee in Buffalo, New York, her store was always packed during the holidays with people meeting friends and family. She witnessed first dates and helped a customer’s propose to his spouse, writing “will you marry me?” on a cup.

“It was a cheerful, amazing thing to be part of it,” she said of working at Starbucks and forming close relationships with customers. “It’s why so many employees stayed for so long.”

Eisen has helped lead Starbucks Workers United, a group unionizing company stores.

But Starbucks’ business has transformed, and it has struggled to maintain its identity as that third place along the way.

Mobile ordering and drive-thru

Mobile app and drive-thru orders make up more than 70% of Starbucks’ sales at its approximately 9,500 company-operated stores in the United States. In some stores, customers complained online that Starbucks pulled out comfortable chairs and replaced them with hard wooden stools. Starbucks has also built pickup-only stores without seating. Machines that print customers’ names have replaced baristas’ handwriting on cups.

“Third place is a broader definition,” current Starbucks CEO Laxman Narasimhan said last year. The “classic definition of third place — it’s a box where I go to meet someone — it’s frankly not relevant anymore in this context.”

Starbucks’ sales in its home North America market dropped 3% last quarter. Schultz, who stepped down as Starbucks’ CEO (for a third time) and retired from Starbucks’ board of directors last year, wrote a lengthy message on LinkedIn in May about the company’s issues.

“U.S. operations are the primary reason for the company’s fall from grace. The stores require a maniacal focus on the customer experience,” he said. The company needs to “focus on being experiential, not transactional.”

Starbucks’ changes to its sit-down business model came in response to several trends — demand from customers for ordering coffee from their cars in drive-thru lanes or on their smartphones. The shift from a business serving hot coffee to one in which cold coffees, teas and lemonades make up more than half of sales. The Covid-19 pandemic, which forced cafes to shut indoor seating.

Starbucks shifted to meet Wall Street’s demands, too. Starbucks found it could reduce labor costs and increase order volume by running a mostly drive-thru and take-away coffee business. Starbucks also found difficulties with being America’s third place and did not want to become the public space and bathroom for everyone, including people coming into stores who were homeless or struggling with mental health challenges on city streets. Starbucks has closed some stores and restricted bathroom access over safety concerns.

But by prioritizing speed — “throughput” in corporate parlance — Starbucks hurt the appeal of sitting down for coffee in stores, some critics say.

“Their success has not enabled them to retain what people originally found so attractive about the brand,” said Tom Cook, a principal at restaurant consultancy King-Casey who has worked with Starbucks. “It’s turned into a transaction business that has very little interpersonal interaction and engagement.”

Many Starbucks’ stores feel more like a fast-food restaurant than a coffee shop, Cook said. “They had this unique image and personality. That doesn’t exist anymore.”

‘Just another commodity product’

Starbucks’ shift from a sit-down shop to a primarily drive-thru and mobile pickup business has been gradual.

The company was hesitant to build out drive-thru stores during the 1990s, fearing they would take away from the third place appeal.

“We don’t want to become just another commodity product,” Starbucks finance chief Michael Casey said in the 1995 profile of the company. “The drive-thrus are a way for the converted to get their coffee a little quicker. It’s not the way we want people to discover the Starbucks experience.”

But Starbucks warmed to the option, finding that many customers preferred the convenience of drive-thrus on their way to work. By 2005, nearly 15% of Starbucks’ roughly 7,300 stores were drive-thru locations. For the first time that year, more than half of new Starbucks stores were drive-thru locations. Today, 70% of Starbucks locations have a drive-thru option.

Mobile ordering was another major step in Starbucks’ road to becoming primarily a take-away business.

In 2014, Starbucks debuted its mobile ordering system, which allowed customers to place pickup orders from their smartphones without having to interact with an employee. Mobile ordering also gave the company more data on consumers and helped push them to Starbucks’ loyalty program, benefiting Starbucks because loyalty members are its most profitable customers.

Mobile ordering surged during the Covid-19 pandemic in 2020, when Starbucks was required to temporarily close seating areas inside to customers to prevent the virus’ spread. Mobile orders jumped from 17% of sales in early 2020 to 26% the following year.

Although mobile ordering has been popular with busy customers and investors, growing to more than 30% of sales today, it has taken away from the sit-down experience, analysts say.

Starbucks baristas have complained about the crush of additional orders coming in from mobile orders and struggles to keep up with demand. People enter and exit stores more frequently, opening and closing the door and letting in the cold or heat.

Mobile ordering “commoditized” Starbucks by leading it to focus on order volume and efficiency, said Joe Pine, the co-founder of consultancy Strategic Horizons who wrote a recent article about Starbucks’ struggles in Harvard Business Review.

Starbucks’ menu changes also had an impact on this shift. Starbucks is less of a coffee shop today and more of an iced tea, coffee, energy drink and lemonade store, especially in the summer, when nearly 80% of the drinks are cold. Customers are less interested in lingering in an air-conditioned store sipping iced coffee, analysts say.

‘Reimagining the third place’

Starbucks says that it’s evolving its third place model from being a physical store to a feeling.

In 2022, Starbucks said it was “reimagining the third place” by investing $450 million in stores with new coffee-making equipment to improve efficiency for employees and improving Starbucks’ mobile ordering system. One of these improvements is called the Siren System, which is designed to cut down the amount of time it takes to make cold drinks.

Starbucks also is opening 2,000 new stores, including traditional Starbucks locations, pick-up stores, delivery-only stores and drive thru-only locations.

Eisen, the Starbucks employee in Buffalo, said Starbucks has tried to balance competing demands from customers who want to grab their orders and go and others who want to sit down.

The best way Starbucks can preserve the third place in the digital age is to improve ordering on the mobile app for both customers and workers, she said.

That means reducing wait times for customers and easing the burden on Starbucks workers so they have enough time to prepare drinks and acknowledge customers when they come in to pick up their orders.

“If the worker feels less stressed, they are able to greet the customer,” she said. “That allows the Starbucks worker and the customer to have that connection.”

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